• What to Expect When the ProShares Bitcoin Futures ETF Trades on Tuesday

  • This week marks a significant milestone in the crypto world, as the first Bitcoin ETF in the United States begins trading on Tuesday. The news fueled a rally last week, pushing Bitcoin past $60,000 for the first time since May.

    The ETF, officially known as the ProShares Bitcoin Strategy ETF and set to trade under the ticker BITO, provides a new way to purchase Bitcoin on the stock exchange.

    Decrypt has prepared this plain English FAQ to answer all of your potential questions, including how to purchase it. This is not financial advice.

    What is the ProShares Bitcoin ETF all about?

    ETF is an abbreviation for “exchange-traded fund.” ETFs buy and package an asset or multiple assets—anything from gold to a themed basket of different corporate shares (for example, a cannabis ETF)—and then sell it in the form of a single stock that anyone can trade on public markets. ETFs are designed to have a price that corresponds to the price of the underlying asset.

    The new Bitcoin ETF, on the other hand, is not a “pure” Bitcoin ETF. ProShares is not purchasing and packaging Bitcoin, but rather a collection of contracts tied to the future price of Bitcoin. “BITO, or ProShares Bitcoin Strategy ETF, will invest primarily in Bitcoin futures contracts and does not directly invest in Bitcoin,” the company stated in a Monday morning announcement.

    That appears to be complicated. Is that correct?

    It is undoubtedly more complicated than a regular share of a company’s stock, unless you are an experienced trader. Futures ETFs, unlike regular ETFs, can trade at different prices depending on the underlying asset they hold. This is due in part to professional traders using futures ETFs to arbitrage price movements, as well as the fund having to pay to roll over monthly contracts.

    The takeaway is that the ProShares ETF’s price will roughly track the value of Bitcoin, but not to the extent that a traditional ETF would.

    How do I get my hands on the new Bitcoin ETF?

    ETFs are traded on the stock market, so if you have an account with a brokerage firm like Fidelity or Robinhood, simply look up the ticker symbol and purchase it like you would shares of Microsoft, Tesla, or Square.

    When will I be able to purchase it?

    On Monday, ProShares officially announced that BITO will begin trading on Tuesday.

    How much do the ETF’s fees cost?

    According to MarketWatch, the annual fee for the ProShares ETF is 0.95 percent. So, if you buy $1,000 in shares, you’ll pay $9.50 in fees per year. This is more than most regular ETFs charge. This is largely due to the fact that, as previously stated, this is a futures ETF.

    Are more Bitcoin ETFs on the way?

    Yes, as many as three or four other funds are expected to be approved by the SEC and begin trading as soon as this week. However, they will be futures ETFs that are priced and structured similarly to the ProShares offering.

    A traditional Bitcoin ETF, which is available in other countries, is still at least months away from regulatory approval in the United States, and it’s unclear whether the SEC’s approval of a futures ETF indicates that it will also allow a “pure” Bitcoin ETF.

    Is this a safe way to purchase Bitcoin?

    That is entirely up to you.

    If you want to invest in Bitcoin through a brokerage account, this is a new option. You could also do this by purchasing shares of the Grayscale Bitcoin Trust (ticker: GBTC), a long-standing option that charges a 2% annual fee and does not exactly match the price of Bitcoin. Another indirect way to gain exposure to Bitcoin is to invest in companies that hold Bitcoin, such as MicroStrategy, Square, and Tesla; earlier this month, the SEC approved an ETF of “Bitcoin Revolution companies” that hold Bitcoin or are developing Bitcoin products.

    Most long-term cryptocurrency supporters, however, will tell you that the best way to buy Bitcoin is simply to buy Bitcoin. You can do so through brokerages such as Coinbase, Binance, Kraken, Gemini, Robinhood, Square, or PayPal. This method results in lower fees and ensures that the price you pay is nearly identical to the current market price. However, buying crypto directly requires some technical steps that many people find intimidating or off-putting, which is why many market experts believe a Bitcoin ETF will attract a flood of new entrants into Bitcoin.

    What's your reaction?